NOV Inc. (NOV)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

NOV is a leading independent equipment and technology provider to the global energy industry. NOV and its predecessor companies have spent over 160 years helping transform oil and gas development and improving its cost-effectiveness, efficiency, safety, and environmental impact.

NOV’s extensive proprietary technology portfolio supports the industry’s drilling, completion, and production needs. With unmatched cross-segment capabilities, scope, and scale, NOV continues to develop and introduce technologies that further enhance the economics and efficiencies of energy production, with a focus on digital, automation, and robotics solutions.

Lower-cost, reliable sources of energy significantly contribute to raising the global standard of living by powering economic development, enabling better infrastructure and facilitating the production of goods and services that improve quality of life. Over the past few decades, the Company has pioneered and refined key technologies to improve the economic viability of frontier resources, including unconventional and deepwater oil and gas. More recently, by applying its deep expertise and technology, NOV has developed solutions to improve the economics of alternative energy sources.

NOV serves major-diversified, national, and independent service companies, contractors, and energy producers in 57 countries. NOV operates under two segments, Energy Equipment and Energy Products and Services.

Results of operations are presented in accordance with GAAP. Certain reclassifications have been made to prior period financial information in order to conform with current period presentation. The Company discloses Adjusted operating profit (defined as operating profit excluding gains and losses on sales of fixed assets, and, when applicable, pre-tax Other Items (as defined below under “Executive Summary”)) and Adjusted EBITDA (defined as operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets, and, when applicable, pre-tax Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. See “Non-GAAP Financial Measures and Reconciliations in Results of Operations” for an explanation of our use of non-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP.

Energy Equipment

The Company’s Energy Equipment segment manufactures and supports the capital equipment and integrated systems needed for oil and gas exploration and production, both onshore and offshore, as well as for other marine-based, industrial and renewable energy markets.

The segment designs, manufactures, and integrates technologies for drilling and producing oil and gas wells. This includes equipment and technologies needed for drilling, including land rigs, offshore drilling equipment packages, drilling rig components, managed pressure drilling, and software control systems that mechanize and automate the drilling process and rig functionality; hydraulic fracture stimulation; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; cementing products; onshore production, including fluid and gas processing, flow control and pumping solutions; offshore production, including integrated production systems and subsea production technologies; and aftermarket support of these technologies, providing spare parts, service, and repair.

Energy Equipment primarily serves contract drillers, oilfield service companies, and oil and gas companies. Demand for the segment’s products primarily depends on capital spending plans by drilling contractors, service companies, and oil and gas companies, and secondarily on the overall level of oilfield drilling, completions, and workover activity which drives demand for equipment, spare parts, service, and repair for the segment’s large installed base of equipment.

The segment also serves marine and offshore markets, where it designs and builds equipment for wind turbine installation and cable lay vessels, and offers heavy lift cranes and jacking systems; industrial markets, where the segment provides pumps and mixers for a wide breadth of industrial end markets; and other renewable energy markets, where it provides solutions that support wind power development, and carbon sequestration by applying its gas processing expertise.

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Energy Products and Services

The Company’s Energy Products and Services segment primarily designs, manufactures, rents, and sells products and equipment used in drilling, intervention, completion, and production activities. Products include drill bits, downhole tools, premium drill pipe, drilling fluids, integral and weld-on connectors for conductor strings and surface casing, completion tools, and artificial lift systems. The segment also designs, manufactures, and delivers high-end composite pipe, tanks, and structures engineered to solve both corrosion and weight challenges in a wide variety of applications, including oil and gas, chemical, industrial, wastewater, fuel handling, marine and offshore, and rare earth mineral extraction.

In addition to product and equipment sales, the segment provides services, software, and digital solutions to improve drilling and completion operational performance. Services include tubular inspection and coating, solids control, waste management. Software and digital solutions offered include drilling and completion optimization and remote monitoring (via downhole and surface instrumentation), wired drill pipe services, software controls and applications, and data management and analytics services at the edge and in the cloud.

Energy Products and Services serves oil and gas companies, drilling contractors, oilfield service companies, oilfield equipment rental companies and developers of geothermal energy. Demand for the segment’s products and services primarily depends on the level of oilfield drilling activity by oil and gas companies, drilling contractors, and oilfield service companies. Demand for the segment’s composite solutions serving applications outside of oil and gas are driven by industrial activity, infrastructure spend, and population growth.

Critical Accounting Policies and Estimates

In our annual report on Form 10-K for the year ended December 31, 2025, we identified our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition under long-term construction contracts, impairment of goodwill and other indefinite-lived intangible assets, inventory reserves, and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.

EXECUTIVE SUMMARY

For the second quarter ended June 30, 2026, the Company generated revenues of $2.13 billion, an increase of four percent sequentially and a decrease of two percent compared to the second quarter of 2025. Net income increased $4 million, or $0.02 per diluted share, year-over-year to $112 million. Operating profit was $193 million, or 9.0 percent of sales, an increase of 35 percent versus the second quarter of 2025. Adjusted operating profit was $190 million, an increase of 15 percent versus the second quarter of 2025. Adjusted EBITDA increased $31 million year-over-year to $283 million, or 13.3 percent of sales. Second quarter 2026 Adjusted operating profit and Adjusted EBITDA include a benefit of approximately $40 million related to tariff refunds.

Segment Performance

Energy Equipment

Energy Equipment generated revenues of $1.22 billion in the second quarter of 2026, an increase of one percent from the second quarter of 2025. Operating profit increased $55 million from the prior year to $177 million, or 14.5 percent of sales, and included $2 million in pre-tax Other Items and a $7 million gain on sales of fixed assets. Adjusted EBITDA increased $42 million from the prior year to $200 million, or 16.4 percent of sales, and includes a benefit of approximately $14 million related to tariff refunds. Strong execution on offshore production projects nearing completion and a more favorable sales mix drove the improvement in revenue and profitability.

New orders booked during the quarter totaled $474 million, an increase of $54 million when compared to the $420 million of new orders booked during the second quarter of 2025. Orders shipped from backlog were $638 million, representing a book-to-bill of 74 percent and an increase of $6 million when compared to the $632 million orders shipped and a 66 percent book-to-bill during the second quarter 2025. As of June 30, 2026, backlog for capital equipment orders for Energy Equipment totaled $4.08 billion, a decrease of $220 million from June 30, 2025.

Energy Products and Services

Energy Products and Services generated revenues of $974 million in the second quarter of 2026, a decrease of five percent from the second quarter of 2025. Operating profit increased $2 million from the prior year to $85 million, or 8.7 percent of sales, and included $9 million in pre-tax Other Items and a $13 million gain on sales of fixed assets. Adjusted EBITDA decreased $2 million from the prior year to $144 million, or 14.8 percent of sales, and includes a benefit of approximately $26 million related to tariff refunds. Market share gains by the segment’s drill bit and artificial lift operations and continued growth in digital services were more than offset by lower capital equipment sales, despite orders booked in the first half of 2026 that are expected to support higher shipments in the second half of the year.

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Oil & Gas Equipment and Services Market and Outlook

Macroeconomic and geopolitical uncertainty remains elevated due to the conflict in the Middle East. Widespread damage to energy infrastructure and the closure of the Strait of Hormuz have materially tightened oil and gas fundamentals, causing volatility in global commodity markets and renewing focus on the need for energy security. Management believes reduced production capacity resulting from years of underinvestment in the oil and gas industry along with the growing need to diversify supply sources will spur renewed investment in upstream capacity and regional infrastructure needed to support more resilient supply. In this environment, management expects increased demand for the Company’s equipment and technology.

NOV remains focused on the development and commercialization of innovative products and services that lower the marginal cost and environmental footprint of energy production. The Company also remains focused on improving operational efficiency, simplifying processes, and allocating capital to opportunities where it believes it has competitive advantages, technology differentiation, and the ability to generate attractive returns. Management believes this strategy will further strengthen the Company’s competitive position across market cycles and create value for shareholders.

Operating Environment Overview

The Company’s results are dependent on, among other things, the level of worldwide oil and gas drilling, well remediation activity, the prices of crude oil and natural gas, capital spending by exploration and production companies and drilling contractors, worldwide oil and gas inventory levels and, to a lesser degree, the level of investment in w

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General Overview

The Company is a leading independent provider of equipment and technology to the upstream oil and gas industry. With operations in approximately 503 locations across six continents, NOV designs, manufactures and services a comprehensive line of drilling, well servicing and offshore production and construction equipment; sells and rents drilling motors, specialized downhole tools, and rig instrumentation; performs inspection and internal coating of oilfield tubular products; provides drill cuttings separation, management and disposal systems and services; and provides expendables and spare parts used in conjunction with the Company’s large installed base of equipment. NOV also manufactures coiled tubing, high-pressure fiberglass tubing, and sells and rents advanced in-line inspection equipment to makers of oil country tubular goods. More recently, by applying its deep knowledge in technology, the Company has helped advance solutions supporting alternative forms of energy. The Company has a long tradition of pioneering innovations which improve the cost-effectiveness, efficiency, safety, and environmental impact of oil and gas operations.

NOV’s revenue and operating results are principally directly related to the level of worldwide oil and gas drilling and production activities and the profitability and cash flow of oil and gas companies and drilling contractors, which in turn are affected by current and anticipated prices of oil and gas. Oil and gas prices have been and are likely to continue to be volatile. See Item 1A. “Risk Factors”.

Unless indicated otherwise, results of operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to the prior year financial statements to conform with the 2025 presentation. The Company discloses Adjusted Operating Profit (defined as Operating Profit excluding gains and losses on sales of fixed assets, and, when applicable, pre-tax Other Items (as defined below under “Executive Summary”)) and Adjusted EBITDA (defined as Operating Profit excluding depreciation, amortization, gains and losses on sales of fixed assets, and, when applicable, pre-tax Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. See Non-GAAP Financial Measures and Reconciliations in Results of Operations for an explanation of our use of non-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP.

Operating Environment Overview

NOV’s results are dependent on, among other things, the level of worldwide oil and gas drilling, well remediation activity, the price of crude oil and natural gas, capital spending by exploration and production companies and drilling contractors, and worldwide oil and gas inventory levels. Key industry indicators for the past three years include the following:

* Averages for the years indicated. See sources below.

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The following table details the U.S., Canadian, and international rig activity and West Texas Intermediate Oil prices for the past nine quarters ended December 31, 2025 on a quarterly basis. During the third quarter of 2025, Baker Hughes updated its methodology for calculating rig counts in the Kingdom of Saudi Arabia effective for periods beginning January 2024. Prior-period international rig count data has been restated to reflect this change.

Source: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude Price, Natural Gas Price: US Department of Energy, Energy Information Administration (www.eia.doe.gov).

The average price per barrel of West Texas Intermediate Crude was $65.46 in 2025, a decrease of 14.5% over the average price for 2024 of $76.55 per barrel. The average natural gas price in 2025 was $3.53 per mmbtu, an increase of 61.2% compared to the 2024 average of $2.19 per mmbtu. Average rig activity worldwide a decrease of 6.6% for the full-year in 2025 compared to 2024. The average crude oil price for the fourth quarter of 2025 was $59.64 per barrel, and natural gas was $3.75 per mmbtu.

As of February 6, 2026, there were 779 rigs actively drilling in North America, comprised of U.S. and Canada, compared to the fourth quarter of 2025 average of 733 rigs, an increase of 6 percent. The price for West Texas Intermediate Crude Oil was $63.55 per barrel at February 6, 2026, an increase of 7 percent from the fourth quarter of 2025 average. The price for natural gas was $3.42 per mmbtu at February 6, 2026, a decrease of 9 percent from the fourth quarter of 2025 average.

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EXECUTIVE SUMMARY

NOV generated revenue of $8.74 billion in 2025, a 1% decline from prior year despite a 7% decrease in global activity levels due to increased demand for offshore capital equipment.

For the year ended December 31, 2025, the Company reported net income attributable to the Company of $145 million, a decrease of $490 million from 2024, reflecting lower levels of operating profit, a higher effective tax rate from valuation allowances on deferred tax assets, and a higher mix of foreign earnings. Operating profit was $494 million and adjusted operating profit was $674 million, compared to operating profit of $876 million and adjusted operating profit of $767 million in the prior year. Adjusted EBITDA decreased $81 million to $1.03 billion, or 11.8 percent of sales for the full-year 2025.

For the fourth quarter ended December 31, 2025, revenue was $2.28 billion, a decrease of 1 percent compared to the fourth quarter of 2024. Net income decreased $238 million, or $0.62 per diluted share, year-over-year from $160 million, primarily due to a higher effective tax rate from valuation allowances on deferred tax assets, a higher mix of foreign earnings, and an increase in pre-tax Other Items. Operating profit was $92 million and adjusted operating profit was $177 million, compared to operating profit of $207 million and adjusted operating profit of $214 million in the fourth quarter of 2024. Adjusted EBITDA decreased $35 million year-over-year to $267 million, or 11.7 percent of sales.

Segment Performance

Energy Products and Services

Energy Products and Services generated revenues of $989 million in the fourth quarter of 2025, a decrease of 7 percent from the fourth quarter of 2024. Operating profit decreased $39 million from the prior year to $73 million, or 7.4 percent of sales, and included $7 million in pre-tax Other Items. Adjusted EBITDA decreased $33 million from the prior year to $140 million, or 14.2 percent of sales. Lower revenues reflected reduced global activity, partially offset by market share gains. Profitability was further impacted by increased tariffs and inflationary pressures.

Energy Equipment

Energy Equipment generated revenues of $1.33 billion in the fourth quarter of 2025, an increase of 4 percent from the fourth quarter of 2024. Operating profit decreased $45 million from the prior year to $107 million, or 8.0 percent of sales, and included $46 million in pre-tax Other Items. Adjusted EBITDA decreased $5 million from the prior year to $180 million, or 13.5 percent of sales. Revenues benefited from strong execution on backlog, while lower demand for aftermarket spare parts and services led to a less favorable sales mix.

New orders booked during the quarter totaled $532 million, a decrease of $225 million when compared to the $757 million of new orders booked during the fourth quarter of 2024. Orders shipped from backlog were $728 million, representing a book-to-bill of 73 percent, compared to the $628 million orders shipped and a 121 percent book-to-bill for the fourth quarter of 2024. As of December 31, 2025, backlog for capital equipment orders for Energy Equipment totaled $4.34 billion, a decrease of $93 million from $4.43 billion in fourth quarter of 2024.

Oil & Gas Equipment and Services Market and Outlook

Macroeconomic uncertainties remain elevated due to geopolitical events, changes to trade policies, and the decision by OPEC+ to return larger than anticipated quantities of oil to the market. These factors are raising concerns for both supply and demand related challenges to global commodity markets, resulting in lower oil prices, significant market volatility, and greater uncertainty.

Current market conditions present a difficult environment for making capital investment decisions, and the short-term outlook remains uncertain, with clearer downside risk than upside. However, management does not expect near-term volatility to affect broader industry trends including: (1) offshore and international resources becoming the primary source for future incremental supplies of oil to meet global demand; (2) growing focus on natural gas from deepwater and unconventional resources to meet growing global demand for power; and (3) the application of emerging technologies to drive efficiencies and productivity in energy operations.

NOV remains focused on the development and commercialization of innovative products and services that lower the marginal cost and environmental footprint of energy production. We believe this strategy along with continued efforts to improve organizational efficiencies will further advance the Company’s competitive position in any market environment.

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Results of Operations

The following table summarizes the Company’s revenue, operating profit, and adjusted operating profit by operating segment (in millions):

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